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Economy in Brief

Philadelphia Fed Factory Conditions Index Improves Again
by Tom Moeller  October 19, 2017

The Philadelphia Federal Reserve reported that its General Factory Sector Business Conditions Index for October increased to 27.9 after a rise to 23.8 during September. The figure remained up sharply versus the 2015 low and compared to expectations for 20.7 in the Action Economics Forecast Survey. Thirty-nine percent of firms reported an improvement in business activity and 39% also reported deterioration.

The ISM-Adjusted General Business Conditions Index constructed by Haver Analytics rose to 59.8 this month, a seven-month high. This figure is comparable to the ISM Composite Index. During the last ten years, there has been a 71% correlation between the adjusted Philadelphia Fed Index and real GDP growth.

The increase in the overall current conditions index reflected mixed performance amongst the component series. The delivery time and inventory series rose. The new orders, shipments and unfilled orders indicators each fell.

The employment series surged to a record high. Thirty-one percent of respondents raised job levels while none lowered them. During the last ten years, there has been a 74% correlation between the jobs index and the m/m change in manufacturing sector payrolls. The average workweek reading also gained to the highest level since June.

The prices paid measure strengthened to the highest point since March. Forty percent of respondents (NSA) reported paying higher prices, while two percent paid less. The prices received index eased and has moved sideways since November.

The index measuring expected business conditions in six months declined and gave up most of its September rise. That reflected lower readings for new orders, shipments, delivery times and inventories. The employment reading increased to its long-term high and the workweek figure strengthened. The reading of future capital expenditures eased m/m but was up sharply y/y.

The survey panel consists of 150 manufacturing companies in Federal Reserve District III (consisting of southeastern PA, southern NJ and Delaware). The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease in activity. The ISM-adjusted figure, calculated by Haver Analytics, is the average of five diffusion indexes: New orders, production, employment, supplier deliveries and inventories with equal weights (20% each). Each diffusion index is the sum of the percent responding "higher" and one-half of the percent responding "same."

The figures from the Philadelphia Federal Reserve can be found in Haver's SURVEYS database. The Action Economics figure is available in AS1REPNA.

Philadelphia Fed - Manufacturing Business Outlook Survey (%, SA) Oct Sep Aug Oct'16 2016 2015 2014
General Factory Sector Business Conditions 27.9 23.8 18.9 11.1 4.8 3.6 18.3
ISM-Adjusted Business Conditions 59.8 57.9 55.2 46.1 48.2 49.4 53.7
  New Orders 19.6 29.5 20.4 17.3 4.9 3.0 14.9
  Shipments 24.4 37.8 29.4 13.5 6.9 3.1 16.3
  Unfilled Orders 10.9 17.0 14.5 -0.7 -5.5 -5.1 3.3
  Delivery Time 21.6 14.5 10.5 -0.7 -4.6 -4.1 0.6
  Inventories 6.0 -1.4 -6.1 -0.4 -9.7 -1.5 1.7
  Number of Employees 30.6 6.6 10.1 -4.1 -5.7 3.9 10.5
  Average Workweek 19.4 11.9 18.8 -1.7 -5.5 -1.8 3.9
  Prices Paid 38.1 34.4 21.1 8.9 13.5 1.5 21.6
Expectations - General Business Conditions; Six Months Ahead 46.4 55.2 42.3 35.7 33.7 37.4 47.6
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